By Meredith Wilson
The recent study by the Fiscal Futures Project of the University of Illinois dangled the state over a 2016 operating budget deficit of $9 billion, a black hole $3 billion deeper than previously anticipated.
But, buried in the same report are solutions to yank it back from the brink.
The study outlines a combination of income tax changes, sales tax expansion and carbon credits that would raise nearly $11 billion in sustainable revenue and don’t violate any of Gov. Bruce Rauner’s campaign promises.
- $4.93 billion generated by eliminating most personal income tax credits and taxing retirement income.
The governor has promised only to not raise the income tax rate.
- $4 billion by broadening the sales tax base to include services as well as goods, a proposal that Rauner has already publicly supported.
- $2 billion by enacting cap and trade, which has been successful in California since 2012.
To gain lesser amounts, the report suggests raising taxes on cigarettes ($175 million) and alcohol and casinos ($150 million).
Throughout his campaign, Rauner reiterated that stimulating business growth is the root solution to Illinois’ financial woes.
“We need a booming economy that is pro-growth, pro-business, pro-job creation or we won’t have the resources to solve any of our other problems,” Rauner said during his inaugural address.
However, the University of Illinois study suggests that simply enacting policies to stimulate economic growth may not actually create enough revenue to justify the risks, which include the upfront costs of courting business and the unreliability that incentives will actually create growth.
“In a recent study, we found that an increase in the growth rate of personal income by an extra one-half percent every year for 10 years had only a modest effect on the projected deficit,” the study said. It was authored by the university’s Institute of Government and Public Affairs.
On the other hand, if Rauner is to keep his assurances to business leaders, he would probably eschew the report’s recommendations to broaden the corporate tax base (which the study estimates would generate $319 million a year), create a new tax on business activity ($7 billion), or create a statewide property surtax on business ($1 billion per year).
In response to an email, Rauner’s office declined to comment on whether his commitment to business growth would indeed rule out these revenue-generating strategies.